What you don’t know about insurance could hurt you.
That’s because you need to know exactly what your insurance doesn’t cover before you can fill in the gaps. To find out more, you should test your insurance IQ by answering these questions.
Answers were provided with help from insurance groups, including the Insurance Information Institute, the American Council of Life Insurance an the Health Insurance Association of America.
Q-Your mother-in-law comes for dinner. While helping to clean the dishes, her $3,000 diamond engagement ring falls down the drainpipe. Are you covered for her loss?
A-No. Your mother-in-law is covered by her own homeowners or renters policy.
But chances are she will not be fully reimbursed for the full value of her ring. Homeowners policies insure valuable items such as jewelry, furs and expensive watches only up to a set maximum-say, $1,000 to $2,000.
Also, that maximum is normally per category of valuables listed in the policy, not per item.
Your mother-in-law would need a floater for more insurance on valuable personal property. Floaters for jewelry typically cost $1 for every $100 of value.
Q-Your dog bit the postal carrier on the heel. Now he is suing you for the cost of nine stitches plus pain and suffering and loss of income (he claims that with his bum heel he can’t walk well enough to deliver his mail). Are you covered?
A-The liability portion of your homeowners policy should cover the cost of your legal defense plus the amount of any damages you might be directed to pay by a court or by any out-of-court settlement, up to the limit of your policy.
If damages awarded to the postal carrier exceed your coverage, however, you could end up handing over all your assets and even a portion of your future earnings.
Consider an umbrella liability policy. Coverage up to $1 million might cost $125 to $250 per year.
Q-After years of talking about it, you’ve finally managed to quit smoking. Will this change your life-insurance policy premiums?
A-Definitely. Smoking can add 10 to 40 percent to the cost of your life-insurance premiums, and your insurer should be happy to scale back the costs now that you’ve quit.
You’ll probably need written confirmation from your doctor, or an independent examination, to be eligible for lower rates.
But some companies, such as Shenandoah (800-848-5433, ext. 394), give you a break on rates if you declare your intention to quit.
Q-You attend a party at a friend’s house and park in her driveway. A storm blows a tree onto your car. Who covers the damage?
A-Your auto-insurance company-up to the limit of the comprehensive portion of your policy, less the deductible.
Comprehensive doesn’t cover collisions but does cover the many other miserable things that happen to cars: fire, theft, windstorms, floods and riots, to name a few.
If your insurer finds that your friend was negligent about that tree-perhaps it was old or diseased-the insurer might try to collect damages from your friend or your friend’s homeowners company. (Let’s hope you and your friend have a strong relationship.)
Q-While you’re out of town, cold weather makes your pipes burst, ruining the carpeting and some furniture. Will your homeowners policy cover this?
A-Most policies, but not all, cover the cost of the damage caused by the water.
Homeowners insurance usually comes in three types: HO-1, HO-2 and HO-3.
HO-1, which is the most basic and cheapest, covers such perils as fire, lightning and broken glass-but not water damage from pipes.
You’re better off with the more comprehensive HO-2 or HO-3.
Costs vary widely, but even HO-3 should cost only 10 to 20 percent more than HO-1 coverage.
The plumber’s bill is all yours; even HO-3 won’t cover the cost of fixing the pipes.
Q-Aunt Eugenia died peacefully in her sleep. You know she had life insurance and you are a beneficiary, but you can’t find the policy and you don’t know which company carried the insurance. Are you stuck?
A-Probably not. The life-insurance industry operates a free service for just such a problem.
Send a written request to Missing Policy Search Service, American Council of Life Insurance, 1001 Pennsylvania Ave., N.W., Washington, D.C. 20004-2599. Include a stamped, self-addressed envelope.
You’ll get back a form which, when filled out and returned, will be sent to 100 of the largest insurance companies for information on Aunt Eugenia.
Expect this search to take three to four months.
Q-You break your leg skiing in France and are taken to a local hospital, where they patch you up. They’ve never heard of your health insurer, but they do accept plastic. Will your insurer foot the bill once you limp back home?
A-Probably, but check your coverage before taking a long trip.
Spokespeople for both Blue Cross and Blue Shield and Aetna say you should get an itemized bill (preferably in English) and submit it to your health-care provider.
Note that Medicare usually doesn’t cover you outside the United States. If you don’t have a Medigap policy that does, consider travel medical coverage. You can get it from Access America (800-284-8300), International SOS Assistance (800-523-8930) and Worldwide Assistance Services (800-821-2828). Rates run about $40 to $50 per person for a two-week trip to Europe.
Q-A fluffy ball rolls under your car, after which you hear a thump. Turns out you have just sent a prize breeding animal worth $50,000 to kitty heaven. Are you covered?
A-Yes. Even if you are found to be a kitty squasher, the liability portion of your auto-insurance policy will pay up to the limits of your coverage.
Q-You are robbed of your stereo equipment and television. What will your homeowners insurance reimburse you for?
A-A homeowners policy covers the value of your belongings in one of two basic ways: for their actual cash value or their replacement value.
Actual cash value is the replacement cost of your electronic gear minus depreciation for its use or age. A 3-year-old television that cost you $500, for example, might be valued at only $225 by now, and that’s what you’d get from the insurer.
Much better for most folks is replacement-cost coverage, which pays the cost of a comparable new stereo and TV set. Replacement-cost coverage is typically 10 to 15 percent more expensive than cash-value coverage.
Q-You are covered by Medicare and are told you need an operation. Will Medicare pick up the tab?
A-Fat chance. Medicare coverage has more holes than a shag rug. Currently, for example, you are responsible fo a $676 deductible for hospital stays, and you’ll pick up part of the tab for stays longer than 60 days. You will also be responsible for at least 20 percent of such expenses as surgeon’s and anesthesiologist’s charges and ambulance use.
Medigap insurance is available to plug cracks in your Medicare coverage. The American Association of Retired Persons has a program to help you shop for Medigap insurance and advise you on related issues. For information, write to MMAP, AARP, 601 E St., N.W., Washington, D.C. 20049.
